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BUSI48070: Applied / Consultancy Project

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Literature Review
1ST SEPTEMBER, 2014

Nottingham Business School

MSc Accounting & Finance

Question: To what extent Corporate Social Responsibility (CSR) affect the
company performance in particular on the Small and Medium-Sized
Companies? Evidence from developing countries:

Supervisor:
Student Name:

Sue Alcock
Nadhim Mohammed Ameen

Taha
Student Number:

N0539313

Submission Date:

1st September, 2015

Word Counts:

3300

Introduction:
Over the past decades, Corporate Social Responsibility (CSR) has gained
prominence in the academic literature (Bakker et al., 2005).However,
despite the fact that CSR can be applied to all types of companies,
regardless of their sector or size, mostly it has been investigated on large
company level l (Dell Br'o and Junquera, 2003 Hillary, 2000A, Observatory
small businesses European and medium 0.2002; Spence, 1999; Werner
and Spence, 2004). Also, it is viewed as a vital concept that businesses of
all types and sizes need to understand and address (Charitoudi,
Sariannidis & Giannarakis, 2011: 20).
It has been argued that all organizations have an impact on society and
the environment through their operations, products and services and
through their interaction with key stakeholders and therefore CSR is
important in all firms, large and small (Williams, 2005; Roche, 2002).
However, the literature on CSR has traditionally focused attention on
larger firms. While articles have been calling for research on CSR in small
and medium enterprises (SMEs) since the 1990s, the work to date has
been limited and there is a considerable amount of research needed
(Lapointe et al., 2004; Spence et al., 2003) (article 9)

http://oconnorandkelly.ie/csr-in-smes-and-large-companies/
CSR can be considered a tool to stimulate development due to the
positive relationship between business strategy and social
performance(article 14)

Corporate social responsibility is becoming a significant activity to businesses. There are a lot
of theoretical studies examining corporate social responsibilitys effect on companys
operations (article 24)
There is a large number of diverse and contradictory studies
of how social responsibility exercises influence over the company's financial performance. Nevertheless,
common conclusions about the relation of CSR and performance results of the company havent been received
yet:

Raynard and Forstater (2002) assess the impact of CSR on small and
medium enterprises (SMEs), and they found that SMEs have more
opportunities than risks when carrying out CSR activities. In this sense,
they held that the relationship between enterprises and civil society has
radically changed, with the new focus being environmental and social
issues, rather than corruption.

There are basic CSR issues that all SMEs have a responsibility for,
amongst them the creation of a good working environment where
diversity is encouraged, the fair distribution of wealth in am community,
and the protection of the environment. SMEs are often portrayed badly in
relation to such basic responsibilities (Bacon et al., 1996; Gibb, 2000;
Hillary, 2000). However, as this paper demonstrates, this is not
necessarily the case, and there are companies in the U.K. who have
decided to embrace the concepts of CSR and sustainability and who
exemplify good practice (article 11)

There is a vast academic literature on CSR given the high ranking that this
issue has created in theoretical and managerial discussions (Lindgreen
and Swaen, 2010). The review below concentrates on the two aspects that
impact on the study being conducted. (article 16) one is. Others
.

Corporate Social Responsibility (CSR)

in Small and Medium-Sized
Enterprises: A Developing Country
Perspective
A number of authors have indicated that SMEs are rarely engaged in
formal CSR practices and that they encounter more challenges than their
larger counterparts in implementing in CSR strategies (Lepoutre and
Heene, 2006). This lack of engagement is largely attributed to the lack of
awareness of the SMEs about the significance of their engagement in CSR
(Tilley, 2000; Hitchens et al., 2005). Small businesses generally view that
they lack time, resources and support necessary to engage in more
thoroughgoing CSR activities (Tilley, 2000; Jenkins, 2006; Sweeney, 2007)
(article 17). Empirically, the size of enterprise has been identified as a
barrier for SMEs to engage in CSR practices (Murphy et al., 1992;
Brammer and Millington, 2006). Nevertheless, a number of researchers
suggest that this barrier may not prevent SMEs from engaging in CSR
activities (Castka et al., 2004; Vives, 2006), and that SMEs may actually
benefit significantly from doing so. The major benefits that SMEs actually
realise from engaging in CSR may include good image, trust and
reputation, improved market position, enhanced employee motivation,
risk management, and cost savings (Jenkins, 2006). Some authors,
however, view that business benefits are not the deciding factor for SMEs
to engage in CSR, it is rather the values andattitudes of owner/managers
that largely drive CSR among SMEs (Hopkins, 2003; Spence et al., 2003;
Spence and Rutherfoord, 2003; Jenkins, 2006).
Integration of CSR is considered important for any size of business
organisation, and this can influence society and the environment through

the firms relationship with stakeholders, delivery of products and

services, and the way business is conducted. Despite recognition of the
importance of CSR in SMEs, practice seems to be rather weak. For
example, a survey by KPMG (2009) shows that 38 per cent of businesses
in Australia have taken steps to reduce carbon emission or energy output
and only 17 per cent of them are SMEs(article 17).
Small and medium-sized enterprises are by far the most common form of
private business in both developed and developing economies. There are
many varied definitions, but a standard one is the European Union
version, which defines SMEs as having fewer than 250 employees. They
account for 99% of all enterprises, which means 23 million firms(article
18).
There are a number of characteristics of social responsibility in small
business that make them distinctive from the rather dominant view of CSR
that takes a corporate perspective(in this point please seearticle 18).
Furthermore, employees are very important stakeholders in small firms. A
key characteristic of small business social responsibility is responding to
their preferences in terms of charitable support and giving, and indeed
focusing efforts on ensuring the maintenance of the livelihoods of
employees, managers, and owners (Spence 2000)
In contrast small businesses are sometimes assumed to perform poorly in
terms of social responsibility and business ethics (Jenkins 2006). A
possible reason for the lack of awareness of social responsibility
approaches by small firms is the conflation with the notion of
entrepreneurship.
CSR practices in SMEs can be categorised into internal, external and
environmental responsibilities. The internal responsibility concerns the
responsible practices that relate to health and safety and the general
welfare of workers. Examples include job participation, training, fairness,
work-life balance, education and corporate governance practices such as
independent audits.External responsibility refers to the business support
provided to the social and cultural activities in the community and to
issues

related

to

the

development

of

the

community.

Finally,

environmental responsibility comprises those business practices that are

geared towards minimising the negative impacts of the firms operations
such as waste reduction, recycling, and energy and water efficiency;
monitoring and re-using of by-products; and preserving natural resources
(Vives, 2006) (article 19).
While the significant economic contribution of SMEs in the developing
countries is acknowledged and well understood, their responsible business
practices have not been widely studied (Jamali, 2007). Nevertheless,
much of the abundant CSR research, models and frameworks originating
from
western country contexts may well be inapplicable to the reality in
developing countries in terms of values, culture and religious beliefs
(Fox,2004; Helg, 2007).
Yet one could claim that the need for the development of frameworks is
pronounced because in the developing countries the stakes are extremely
high in terms of environmental and social challenges, fight against
corruption, poverty alleviation and employment generation. In other
words, there are gaps in social provision and governance where there is a
lack of institutions providing social goods. Under these conditions, SMEs
are inclined to come under heightened expectations to fill those gaps
(Baughn, Bodie, & McIntosh, 2007; Luken, 2006); however, there is still
inadequate knowledge and understanding of the topic, and that situation
merits academic attention (Verheugen & Commission, 2005).
The nature of the CSR activities reflects the reality of the SME sector as
embedded in their cultural and social context in the Egyptian
environment.
strong rationale for the engagement of SMEs with CSR. Such a conception
encompasses a relationship dimension, which is an essential element for
SMEs survival mainly because it is through these on-going personal
relationships that people fulfil their social motives. For instance, one act or
may choose to stay in a firm because of an attachment to the
environment and culture that the firm operates in, despite his ability to
gain economic advantages elsewhere, whereas another without such

personal ties may not consider the surrounding community in making

career moves (Nahapiet & Ghoshal, 1998)
In the context of the SME, it can for example provide a favourable
atmosphere that increases employees loyalty and attachment to the
companies they belong to (article 19).
A crucial note is that developing strong social ties and interactions is
essential for SMEs to generate beneficial and productive resources. Those
interactions occur in terms of exchanging information and resources,
recognising

business

opportunities,

and

influencing

the

potential

performance of the enterprise. That type of social capital encourages

cooperative behaviour and in turn responsibility-sharing among SMEs
(Liao & Welsch, 2005). We can further argue that because SMEs are
seeking such cooperative behaviour, CSR practices could be one of the
most effective network structures that fulfil this cooperative behaviour.
Hence the motivation to diffuse CSR practices among those SMEs.
Accordingly, the structure in which these relationships exist and the way it
influences the SMEs owner managers CSR engagement will be explored
at a macro-environmental level of analysis.
Thus, for a culture of CSR to fully take root, social responsibility could
perhaps be conceptualised as a national obligation, and SMEs might be
educated and guided to be able to identify the areas in which they can
deploy greatest impact and resources for development (i.e. human and
labour rights) due to their proximity and their direct relationships to the
community. Thus, at the macro level, we find this an opportunity for policy
makers to expand their efforts to promote the take up of mainstream CSR
by SMEs, that stems from the strong tradition of giving back with no
expectation of return in a more structured and strategic manner (article
19).
Small and Medium Enterprises in developing countries are critical to the
development process (article 20).

It is now beginning to be integrated with other CSR issues by some large

companies. One important element of this includes actively supporting
SMEs through business links and social investment, as well as influence on
the public policy agenda. This means taking a more holistic approach to
CSR where linkages at different levels of business operations are part of
an overall strategy for the support of SMEs.
This is an emerging CSR issue for TNCs that are beginning to recognize
that forming trading links and development partnerships, which help SMEs
gain access to markets, finance, training, physical infrastructure and
business support services can be one of the key ways that they can have
a positive impact on poverty.
Others are working more broadly in conflict resolution, basic healthcare
and education - these initiatives while not aimed specifically at SMEs help
to create favourable conditions in which small businesses can grow and
flourish.
The ways in which CSR affects SMEs as outlined in Section 4, have the
potential for creating positive social, environmental but also importantly
economic benefits; benefits that go beyond the SME itself, to include
wider local and national communities in developing countries. However,
there are also concerns that CSR will be a veil behind which TNCs may
hide as they rationalise their suppliers or pass on costs for monitoring and
auditing social and environmental performance; burdens that would
increase poverty levels and not lead to positive development.
The key concern most often voiced by both developing country
governments and industrialists is that CSR standards are a mechanism for
retaining jobs, trade and investment in developed countries at the
expense of developing economies, which tend to compete through lower
labour costs and less stringent environmental regulations. This has been
most controversial in relation to moves to make CSR standards
mandatory, or link them to trade agreements. However, as shown above,

the boundary between voluntary and mandatory standards is becoming

increasingly blurred and in some sectors CSR criteria are becoming
industry standards.
For SMEs these costs can be prohibitively expensive in relation to their
smaller outputs leading either to the SMEs themselves deciding that they
cannot afford to be certified or to the larger companies rationalizing their
supply chains to a smaller number of large suppliers that are easier to
monitor.

For

many

companies

this

has

been

the

first

stage

in

implementing an ethical sourcing policy, and is part of a wider trend of

companies building closer links with strategic suppliers.
Pressure for greater CSR whether focusing on environmental, consumer or
human rights issues often shares the common underlying concern that
corporate influence is too great. By many critics, the corporate sector is
charged with unaccountable power and influence, cultural imperialism,
bleeding local economies dry and using the mobility of capital to force an
international race to the bottom.
It is easier for large companies with their developed systems and
economies of scale to deal with the demands for formal monitoring and
standards. SMEs do not have the financial and human resources to invest
heavily in CSR activities unless they bring immediate tangible benefits.
Large companies have more complex networks of relationships, which CSR
can help to strengthen, manage and understand. In SMEs these
relationships are more often invested in the personal interaction of the
entrepreneur.
CSR is the human face of globalization and as such eases the entry of
global companies into the home markets, high streets and sectors where
SMEs have dominated.
Clearly SMEs will have to join the CSR fold, if the small business sector is
not to become the loophole in which polluting, exploitative industries
flourish. However, many of the concerns underlying calls for more CSR by

TNCs do not apply to SMEs, which lack the power to influence

governments, dictate standards or move between countries in search of
lighter regulation. On the other hand, SMEs generally have a greater
understanding of local cultural and political contexts, more links with local
civil society and a greater commitment to operating in a specific area
Better alignment with current and emerging consumer concerns
and access to new markets CSR can help companies gain specific
contracts or trading relationships with TNCs or companies in Northern
markets and communicate directly with consumers through environmental
and social labels. However, export-oriented CSR can only succeed if it is
matched by product quality and service, which meet international market
standards.
Operational cost savings These derive from environmental efficiency
measures such as waste reduction and energy efficiency, reductions in
absenteeism and staff turnover.
Improvements in productivity and quality - Greater efficiency and
better management encouraged by CSR can help companies to improve
the quality and productivity of their output.
Learning and innovation - CSR can help companies find new ways to
work, develop skills, manage risks, seize opportunities and solve
problems.
However a pick-and-mix bag of business benefits does not provide a
compelling case that these benefits will be significant for every company,
or in fact that they will not distract attention and resources away from
other more pressing issues and lead to financial ruin. In the case of SMEs
in developing countries, upgrading the quality of their technology,
management and marketing are likely to be equally pressing priorities.
Overall, there seems to be a general awareness of CSR as a business
issue, and that it is of relevance to SMEs. Many of the main CSR issues are

seen to be important, in particular environmental concerns (pollution and

waste), transparency and accountability. Although there is a low level of
awareness of emerging international initiatives such as the UN Global
Compact, a number of national and industry-specific initiatives are under
way, in particular concerning codes of conduct. There is a general concern
about the threats CSR may pose in creating a barrier to markets and the
burden of compliance and monitoring. However, there were perceived to
be a number of opportunities presented by CSR, including access to
markets and better alignment to consumer concerns. In all, there seems
to be a perception that CSR issues pose both threats and opportunities
that will require a heightened awareness and careful management among
industry associations and individual companies alike.
If CSR is truly going to become a strategic force in contributing to
international development and eliminating the negative externalities of
business, it must help to develop effective and viable approaches to Small
Business Responsibility. It is crucial that:
CSR supports the role of SMEs in development, and does not serve as a
tool to undermine and disadvantage them.
SMEs are not able to undercut universal CSR standards and become a
blind-spot in which exploitative and environmental destructive practises
flourish.
Thus, the challenges are to reduce the barriers and threats while
strengthening the opportunities and drivers in order to ensure that CSR
has a wide and positive impact on SMEs.
Integrate tools to improve social and environmental impact with
tools to improve quality management. This is beginning to happen at
the cutting edge of CSR development in the North with the move from
separate consideration of social, environmental and economic issues
towards sustainability management and the increasing importance given
to the business case. However, social and environmental pressure on
suppliers tends to be piecemeal and unrelated to the business case.

Develop a framework of Small Business Responsibility to

understand and promote the positive social impact of SMEs, and in
particular how to value, communicate, reward and improve the silent
social responsibility, which already prevails in many SMEs. This would
integrate global supply chain pressures and linkages with business case
benefits and local accountability and the importance of SMEs in
development (article 20).
Corporate social responsibility in SMEs is a subject that has not gained
much research attention until very recently, despite their large
representation among total businesses. As defined for this study, SMEs
have fewer than 500 employees; they are still quite heterogeneous in
terms of company characteristics. Thus a company with less than 10
employees may have very different resources and organizational culture
compared to a company that employs close to 500 people (article 21).
It has been claimed that SMEs are not just small versions of larger
corporations and need to have a different kind of approach into CSR
(Kechiche & Soparnot, 2012). So far the academic literature and
promotion of CSR by different advocacy agencies has been concentrating
on formal aspects of CSR and sustainability such as reporting or official
programs for companies. These might be suitable for large corporations,
but for small and medium-sized companies, formal programs and
reporting requirements might just create an extra burden - thus making
CSR harder to implement (Fassin, 2008). SMEs often face the problem of
concentrating their scarce resources as efficiently as possible, which
undermines the importance of CSR and sustainability research in this field,
because by gaining more knowledge about the issues the implementation
could be more effective (article 21).
See article 22 and page 5 for structure I think it is useful!!!!!!!!!!!
See the bottom page 8 in the same article; you will see an important
point???
See top page 9 also you will see important point

Please see article 22 from page 5 to 14, it is very important for my topic!!!
Corporate social responsibility (CSR) can build reputation and lead to societal
and competitive advantage, which can be especially useful for small and
medium sized enterprises (SME) with limited resources (article 23).
SMEs can strategically use CSR activities in order to develop a competitive
advantage through differentiation by a creating societal advantage.
During the recent years, small and medium sized enterprises have taken an
increased number of initiatives aiming at engaging in CSR (Jenkins, 2006).
CSR in SMEs is less formal and more intuitive than in larger enterprises, but
that does not make it less valuable (European Commission, 2007).
SMEs face challenges when implementing CSR activities, which can be
transformed into opportunities. However, SMEs have difficulty to identify key
stakeholder issues (Jenkins, 2006), which is a vital part of transforming CSR
activities to an economic advantage.
The SMEs which participated in the current study engaged in CSR activities
without an intended strategy but rather with an emergent strategy, which
emerged because of the changes of the external environment. Therefore, the
SMEs did not fully exploit the opportunities of using their CSR activities to
enhance their competitive advantage (article 23).